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Wednesday, January 4, 2012

Competition Act: Is Collective Bargaining a Defense to Section 3(3) of the Competition Act?

In an earlier post, I had mooted a discussion on Competition Law. In this post, the approach to Section 3(3) of the Competition Act is being dealt with. Section 3(3) reads as follows:

(3) Any agreement entered into between enterprises or associations of enterprises or persons or associations of persons or between any person and enterprise or practice carried on, or decision taken by, any association of enterprises or association of persons, including cartels, engaged in identical or similar trade of goods or provision of services, which—

(c) shares the market or source of production or provision of services by way of allocation of geographical area of market, or type of goods or services, or number of customers in the market or any other similar way;

shall be presumed to have an appreciable adverse effect on competition:

Provided that nothing contained in this sub-section shall apply to any agreement entered into by

way of joint ventures if such agreement increases efficiency in production, supply, distribution,

storage, acquisition or control of goods or provision of services.

The provision deals with cartel-like conduct. Like most provisions of the Competition Act, 2002, it raises rebuttable presumptions of anti-competitive conduct. This is clear from the phraseology of Section 3(3) which says “shall be presumed to have an appreciable adverse effect on competition in India”.

Precisely because the presumption is rebuttable, a strict “per se” approach to the behaviour of a party under Section 3(3) would be wrong in law. Stated otherwise, a narrow view of an allegedly anti-competitive action/agreement would run counter to legislative intent.

Further, the provision speaks of “appreciable adverse effect”. Why does the provision use “appreciable”? Does this mean “appreciable” qualifies the alleged “adverse effect”? I think, by using the word “appreciable” before the words “adverse effect”, the Legislature intends to frown upon only those agreements whose adverse effect is appreciable/significant and which is a clear consequence of an impugned agreement.

In the event the adverse effect is not “appreciable”, such an agreement is out of the purview of Section 3, and is hence not anti-competitive. In other words, a non-appreciable adverse effect could actually be a legitimate defense to an allegation under Section 3 of the Act.

What other legitimate grounds of defense are available to a party which is accused of cartel-like conduct under Section 3(3)? The Proviso to Section 3(3) comes to the aid of a party accused of cartel-like behaviour, in rebutting such a presumption/allegation. Simply put, the Proviso to Section 3 is an exception to the proscriptions of Section 3(3).

Now, does collective bargaining fall within the scope of the Proviso to Section 3(3)? Let’s read the Proviso again:

Provided that nothing contained in this sub-section shall apply to any agreement entered into by way of joint ventures if such agreement increases efficiency in production, supply, distribution, storage, acquisition or control of goods or provision of services.

The reference in the Proviso is to “any agreement entered into by way of joint ventures”. Does the Act define “joint venture”? No.

“Joint venture” has been typically susceptible to judicial interpretation which has progressively expanded over time. Therefore, would it be impermissible to include “collective bargaining” within the scope of “joint venture”? I don’t think so.

Has the Competition Commission of India (CCI) commented on “collective bargaining”? In a decision delivered last year in FICCI – Multiplex Association of India v. United Producers/ Distributors Forum, the CCI has recognized the permissibility of “collective bargaining” as a legitimate argument. The relevant para is as follows:

“23.48 Collectivebargaining may not be per se bad in law and may be resorted to for legitimate purposes in accordance with law. However, when the trade associations enter into agreements, as in the present case, in the garb of collectivebargaining which are anti – competitive in nature, then no competition watchdog can countenance such act/agreement. Resultantly, the plea of collectivebargaining, in the facts of the present case, is without any merit and the same is directed to be dismissed.”

It is clear from the above that the argument of collective bargaining, which is permissible in law, was rejected in the Multiplex case only on the basis of facts. Therefore, if the facts of the case had supported the argument, collective bargaining would have been tenable in that case.

An act of collective bargaining must necessarily be seen as a defense to an allegation under Section 3 because not only has it been recognized as a legal right by the Hon’ble Supreme Court of India, but also because it preserves the very intention of the Legislature as reflected by the Statement of Objects and Reasons to the Act:

“ to prevent practices having adverse effect on competition, to promote and sustain competition in markets, to protect the interests of consumers and to ensure freedom of trade carried on by other participants in markets, in India, and for matters connected therewith or incidental thereto.”

Also, collective bargaining by members of an association, although a horizontal agreement, could be treated as a “joint venture” under the Proviso to Section 3, provided the intention behind such collective bargaining/joint venture is not anti-competitive.

How do foreign regimes deal with “collective bargaining” under their competition laws?...to be continued